Might 5, 2020 (Thomson StreetEvents) — Edited Transcript of Alten SA earnings convention name or presentation Friday, April 24, 2020 at 10:59:00am GMT

Alten S.A. – Deputy CEO & COO

* Gregory Okay. Ramirez

So welcome to the convention, Alten, in regards to the turnover for the primary quarter 2020.

Now I will give the ground to Mr. Bruno Benoliel, the Deputy Normal Supervisor. You’ve gotten the ground, sir.

Bruno Benoliel, Alten S.A. – Deputy CEO & COO [2]

Sure, good afternoon. So good afternoon to all of you. Thanks for taking part in that convention name concerning the exercise of the primary quarter 2020. That first quarter was affected by the start of the well being disaster in China in February, and in Europe mid-March, and within the U.S. That unprecedented disaster worse than the one in 2008 has led to suspensions of initiatives. Typically it was huge in some areas, however not so huge in different areas.

The figures that I will current now are an proof of that, however they do not make it attainable to attract conclusions in regards to the tendencies per sectors of exercise or geographies. After the lockdown that needed to be managed in China with a restricted impression on the group exercise. The turnover was EUR 32 million in 2019 in China. The lockdown measures in Europe have led to the suspensions of a number of industries after which afterward within the U.S.

The turnover for the primary quarter of 2020 is EUR 690.1 million, and it’s progressing by 7% versus the primary quarter in 2019. It was EUR 643.Three million on the time. In France, the exercise is secure. Outdoors France, it is progressing by 13.2%. Acquisitions for EUR 20.2 million have contributed as much as 3.3% of the group progress. The precise price have contributed to 0.4% of the expansion of the quarter.

Consequently, in like-for-like exercise and fixed trade charges, the expansion is 4% — at 0.4% in France due to the switch of a associated firm on the finish of 2019 that we’ve transferred and the turnover was EUR 2.7 million of turnover. The natural progress is 0.4% in France and 6.8% outdoors France.

The — there have been 0 — a further 0.73 working days, 0.6 in France. And this has — of working days, this has contributed to an enchancment. There shall be 123 working days for the primary quarter versus — properly, a further of 0.Eight working days. And within the second semester, we’re going to have 50 — 127 working days. Will probably be a further 0.7 working days through the second semester, it is going to be half a day extra day versus 2019.

The primary quarter began consistent with final 12 months in France and overseas. The exercise had a progress price that was extra standardized, like we defined within the assembly in January. As early as January 2020, recruitments have made it attainable to compensate for the lead, and we had 32,800 engineers at first of February. That was a further 300.

March — in March, we had a brutal interruption and we had 32,760 engineers, so we had been at 37,200 on the finish of 2019. There have been 32,750 engineers. So we’ve built-in somewhat firm in Japan with 115 individuals. In France, the engineers have been decreased by 131 individuals, and out of doors of France, the employees has elevated by 236 individuals. The expansion of the employees was due largely within the U.Okay. and Italy and in North America.

As you possibly can think about, the priority since — at March isn’t recruiting however to maintain the exercise happening. Virtually all Alten engineers can work from their houses if their buyer base makes it attainable. However that is fairly completely different, relying on clients and geographical areas. Many shoppers within the trade largely have stopped their initiatives. They’ve halted them or they’re going to resize them. Some clients have determined to shut the positioning and cease all actions through the time frame. And dealing from houses was — has not been attainable even for work-package work as a result of that they had — they did not have the employees obligatory in a extra pragmatic method.

And with the intention to anticipate the long run disaster with the drop of the gross sales, many shoppers have determined to freeze a major share of their initiatives in order that they may make a listing and determine on the finish of the lockdown what could be the precedence initiatives that they’d proceed, what could be the initiatives that they’d proceed by lowering the dimensions of the groups and what could be the initiatives that they’d cease. At this stage, it’s extremely tough to know what the long run shall be as a result of we do not know what their initiatives are, particularly in trade that has been hardly hit just like the automotive sector and the civil aviation.

Since mid-March, in France, in Sweden, in Germany, within the U.Okay. and in Southern Europe, and now within the U.S., many shoppers are taking selections. Wanting on the bench, we’re confronted with this resolution each day. Through the first quarter, the exercise price went down by 2 factors versus 91.8% final 12 months. And in March, the exercise price was 88%, which is 12% of — into contract.

The start of the well being disaster has hampered by 1/Three the outcomes for Q1 for the primary quarter. Now we’re confronted with completely different conditions relying on the geographical areas, the sectors of actions.

I would like to speak in regards to the state of affairs per geographical space, understanding that the tendencies for the primary quarter can’t be extrapolated to the second quarter. Now if I — we will estimate some information for the primary semester, however we’ve to be extraordinarily cautious as a result of the state of affairs is altering in a short time. And we’ve no clear visibility for the entire quarter for a major share of our clients.

In France in Q1, the exercise was secure, plus 0.4%. Suspension of initiatives in March has penalized the expansion by 2%. So it ought to have been round 3%. The sectors which have grown the place Aerospace, plus 4%; Protection & Safety, plus 10%; vitality, plus 10%; the nuclear trade, plus 16%; the rail and naval, plus 19%; and telecom, plus 4%. General, through the first quarter, 2/Three of Alten exercise was rising.

The second quarter shall be very completely different. The well being disaster with very brutal repercussions in France has led to many undertaking interruptions, largely in ASD automotive and within the tertiary sector in Amadeus, relying straight from air transportation, however not on the — many shoppers, all industries included, have closed the websites who haven’t made it attainable to work from our houses. The intercontract price ought to, in France, be at 30% in April after which go down, relying on the resuming of the exercise with our clients. We do not know but that what would be the restoration plans as a result of all industrial methods are being revisited, and we consider that the decline of the exercise could be within the neighborhood of 15% in France for the primary semester, 18% shall be because of the disaster.

On the worldwide degree, the exercise can be being affected by the well being disaster, however in a unique method relying on international locations. No Q1 information might be extrapolated on Q2. After which to provide you country-per-country an total image of the state of affairs at this stage and the time to attempt to shield ourselves within the second quarter, in North America, the exercise has grown up by 25%, 16% for natural progress. The ForEx was vital, it was optimistic by 3.3%.

All sectors within the U.S. had been rising through the first quarter. Probably the most dynamic sectors like in 2019 had been the automotive sector, plus 10%; vitality, plus 50%; life sciences, plus 25%; telecom, plus 11%; finance treasury exercise, plus 5%. The well being disaster has affected North America solely through the second quarter with the development of the intercontract price that was very robust within the automotive and heavy weight within the first place the place we had 500 individuals as a result of many initiatives had been stopped.

Vitality, the vitality sector, largely the fuel was affected for the explanations that you recognize and the administration and consulting supply apply, [PNO] and agile consulting. We’ve got 350 individuals, which have been deployed largely within the vitality sector and treasury finance. The intercontract price within the U.S. may attain 20% through the second quarter, that means that the U.S. exercise may very well be secure for the primary semester, whereas we did anticipate a progress larger than 10%.

In Germany, the exercise has declined by 6.3%. On a like-for-like foundation, Germany was already being affected by the disaster, which weighted by 3% on the decline of the exercise within the automotive sector, 40% of the exercise. The exercise declined by 10%, 15% for tools makers. And for the aeronautic, it is barely rising through the first semester. However in Q2, like in France and for a similar causes, many initiatives have been halted.

Let me recall that the automotive sector and the aeronautic interim accounts for 77% of the turnover in Germany. We may have 22% for the intercontract price, and that is the rationale why the decline that’s anticipated could be within the neighborhood of 20% in Germany, 15% could be because of the disaster.

In Scandinavia, the exercise on a like-for-like foundation is declining by 4% throughout Q1. In Finland, it is rising by 3%, which accounts for 20% of the Scandinavian turnover. However Finland can be being affected throughout Q2 by the disaster. And the very fact ought to be declining by 13% for Q2, which for Finland could be an exercise declining by 5%. For the primary time in Sweden, 80% — making up 80% of the Scandinavian turnover. The automotive sector and heavy weight accounting for 52% of the turnover has stopped a majority of their initiatives as early as mid-March, and their exercise is declining by 5%, 0.2% because of the disaster. Second quarter with an intercontract price corresponding to Germany and the decline ought to be round 20% in Sweden as properly, and 15% could be because of the disaster.

In Spain, the exercise is rising by 6.8% total, however 1.5% are on a like-for-like foundation. However the well being disaster began earlier in February, however some strict lockdown measures have been put in place to the exception of the Safety & Protection sector declining by 20% and automotive declining by 20% as properly. Each sectors accounting for 20% of the Spanish turnover. These sectors have stopped their initiatives like all over the place else in Europe.

All the opposite sectors or actions have continued. They’ve pursued their initiatives working from house, and the exercise has continued roughly usually. All the opposite sectors are rising.

Throughout Q2, the initiatives that had been stopped due to the disaster could be — will intensify, and this may result in a rise of the intercontract charges. Through the first semester, we consider that in Spain, the exercise shall be declining by 5%, so in a reasonable method. Within the Benelux, the exercise is rising at — rising by 5%. In Belgium, it’s secure, even when the performances are completely different from sector, and there ought to be a decline by 7% through the first semester.

Within the Netherlands, exercise has grown by 14%, 4% through the first semester to the exception of electronics and semiconductors accounting for 1/Four of the exercise within the Netherlands.

All sectors are rising. The impression of the disaster shall be felt through the second quarter with an intercontract price that ought to attain 10%. Consequently, the exercise ought to be secure through the first semester. That is why we thought we might have a 3% progress.

In Italy, regardless of the pinnacle disaster that has been brutal and began in February, the exercise was performed largely from house and it has continued regardless of the lockdown. All sectors are rising, even within the automotive sector, plus 11%, even SAD, plus 20%, and the natural progress has reached 15%. Nonetheless, anticipating a slowing down of their exercise, clients have decreased in a major method the funds for the second quarter. Due to this fact, we consider there shall be a powerful slowing down throughout Q2. And in Italy, the expansion ought to be 8% for the primary semester as a consequence to the slowing down in Q2 and never the anticipated 14%.

In Asia Pacific, the scope has continued to develop, plus 32% and plus 13% in natural progress. The expansion of the area was pushed by India as a result of native actions have continued to develop. They make EUR 11 million of turnover through the first semester, with an 18% progress. In India, the exercise goes to decelerate throughout Q2 due to the lockdown measures.

China, EUR 5 million of turnover through the first semester is declining by 13%, and that is not shocking as a result of the exercise has stopped between January and starting of March. They have not been again to regular and the automotive gross sales are nonetheless being strongly impacted in China.

And at last, the U.Okay., the expansion was very rigorous, due to an distinctive 2019, nice — with a really robust progress in aeronautics, plus 66%; automotive, plus 24%; nuclear, plus 100%; the rail — however there could be a powerful impression within the U.Okay. in Q2. We consider there shall be a powerful decline. We consider the decline within the automotive and aeronautics sector shall be within the neighborhood of 20% throughout Q2. So we’re nonetheless going to have a 5% progress, however the disaster will price us round 13%.

Sectors of actions. So the primary quarter has confirmed the tendencies of the newest quarter in 2019, however the disaster has modified all prospects per sector of actions. The automotive is declining by 5%. Throughout Q1, the decline was strengthened by the start of the well being disaster. And it is fairly heterogeneous relying on automobile producers. Some are experiencing some progress and others are declining. However the well being disaster goes to have a serious impression on the exercise and in a sustainable method, and that is going to worsen in 2020 with a attainable bounce again in 2021 that we hope will occur. The rail/naval remains to be strongly rising, plus 16% for the place the disaster has slowed down the exercise in Q2. However the order books are full, and hopefully, the restoration ought to occur at first of 2021.

For the aeronautics, we’ve 16.1% of the turnover. The expansion has been 3% in homogeneous method between the area exercise, the tools makers and plane makers. However well being disaster has had a powerful impression on airline firms. And that is going to have a sustainable impression on the aeronautics sector. Many initiatives have been stopped, the plane manufacturing will go down and the intercontract price initiatives won’t be renewed, make it attainable to fulfill the brand new demand. So many initiatives shall be stopped or decreased. And due to this fact, the visibility that we may have could be very restricted.

Now Protection & Safety, 4.5% of the turnover. They’re strongly rising. Even when there may be an impression throughout Q2, that sector ought to bounce again in a short time. Vitality accounts for 11.5% of the Alten turnover. Oil and fuel, 6% of the turnover. They’ve a plus 25% progress, however they are going to be impacted by the lower of crude oil.

Nuclear, 2% of the turnover. The expansion remains to be fairly sustained and the exercise ought to be preserved.

Life sciences, 7.5% of the turnover, they’re rising by 11%. And on the quick time period, the exercise is being impacted by the disaster, however there ought to be a bounce again.

Telecommunications, [6.6%] of the turnover. They’re barely rising 6.5%, to the exception of Ericsson in Sweden. The expansion is coming from operators, the 5G migration and the networks which might be being overly used due to people who find themselves working from houses. This could proceed after the disaster. Telecommunication, media exercise is declining consistent with what was occurring in 2019, with a major decline at Amadeus, which goes to worsen through the Q2.

Amadeus, I do not know if that is one thing that’s recognized. So I am not going to provide any determine, however the exercise is declining in a major method due to the interruption of the airline exercise. So Q2 digital multimedia, we do anticipate a decline that might be larger than 10%.

Finance and treasury sector, the turnover accounts for 18.4% of Alten exercise, and it’s rising by 3% and it is largely pushed by the banking exercise. Now for exterior progress, we’ve consolidated on January 1, an organization the place we held a minority shareholding, at 40% in Japan. We went as much as 100%. We had a name on that firm. It is an organization with 115 staff, and their profitability is sort of low, decrease than 5%.

The Chinese language-Japanese firm that we acquired on the finish of the quarter, the closing passed off on the finish of final 12 months. This firm is specialised on safety and software program growth. There are 400 individuals. Clients are in Japan, however many of the consultants are situated in China. That firm made EUR 18 million of turnover in 2019, and their margin was barely decrease than 10%

For 2020, I would not dare to make any forecast, not for the second semester, however what we’ve seen — that we have seen that the IT actions had been extra protected than different actions whenever you take a look at the breakdown of the turnover per sector of exercise. That is the rationale why international locations in Southern Europe are doing higher as a result of our exercise is sort of targeted in trade with a major share in automotive and aerospace exercise in France and in additionally Northern Europe. We have used a number of — we have taken a number of measures when attainable to attempt to maintain our margins as a lot as attainable as a result of the intercontract price that we’ve to be confronted with are unprecedented, and it might be very expensive if governments couldn’t pay for a major share of it.

Now so far as the exercise for the primary semester is worried, we do consider there shall be a decline of 9% on a like-for-like foundation. To the perfect of our data as we speak, that it is inconceivable to make any forecast for the second semester as a result of a few of our clients are — can’t give us any forecasts for his or her actions.

I will provide the ground so you possibly can ask any questions that you just might need.

In some industries, in mild of the sophisticated state of affairs that our clients are confronted with, some negotiations are going down about costs. And so we do have a context that’s extra sophisticated than the one we had in 2008 as a result of it isn’t as a lot focused on one sector of exercise, and it is way more brutal with penalties that we’ve to handle each day.

Having mentioned that, we’ll handle the state of affairs. Alten is a wholesome firm. We haven’t any debt. We have needed to handle disaster previously. And so we’re managing the present disaster. And hopefully, as early as subsequent summer time or most likely in September, there shall be a rebound.

Now may we open the ground for contributors?

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Questions and Solutions

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Operator [1]

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(Operator Directions) So we’ve first query from Laurent Daure.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [2]

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Sure. The truth is, I had Three questions. The Airbus account, may you please inform us — I do know it is the largest account, however may you inform us what the state of affairs was final 12 months? And what would be the state of affairs for the primary semester?

The second level is on the way in which you handle your headcount. What would be the group technique? Are you envisaging social plans or what shall be — or are you ready after the top of the lockdown? I assume that you’ve got taken some measures already, and also you do have some potential financial savings. Now for the M&A coverage, in view of the truth that it is tough to make any forecast, can — do you suppose we may have offers on the finish of the 12 months?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [3]

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Now for the Airbus account, it accounts 10% of the turnover — of the group turnover. Taking into consideration that for that account, on Q2, we do count on to see a discount of 40% of the exercise. We have had extra in April, even when the month isn’t over as a result of we’ve real-time reporting of intercontract. So we’re at 45% for April, however that is going to go down as a result of after the lockdown actions will begin once more. So perhaps 40% is somewhat bit excessive, however let’s be cautious. We may go all the way down to 10%, 15% for intercontract charges in June, however I consider we’re going to stay larger than that as a result of among the initiatives won’t begin once more or they won’t begin with the identical measurement of the groups that that they had earlier than the disaster.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [4]

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So for the market share?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [5]

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No, it isn’t particular to Alten. We’re most likely the #1 so far as engineering is worried with Airbus. They’re making a exact stock of all their initiatives which might be underway.

Now what I mentioned in regards to the first semester for the tendencies or the natural progress forecast, we have made an train, which was to attempt to per buyer per undertaking what the exercise was going to be, and we have taken this under consideration.

Now the turnout had began to say no on the finish of March. In France, we have had a whole bunch of individuals leaving the corporate, however these individuals had resigned earlier than. So we’re going to consolidate on the finish of April on the idea of what companies are reporting what would be the resignations on the finish of April. That is how we’re going to have the ability to measure the turnover. Even when the turnover is declining, the turnover is reflecting the previous in the meanwhile. So we’ve to have a look at the conduct of engineers because the starting of the lockdown to see what number of resignations we’ve obtained on the finish of April.

I haven’t got the determine at this stage. I do not consider that we’re going to go all the way down to Zero as a result of there are at all times individuals leaving. In 2008, simply to provide you an order of magnitude, the worst of the disaster, I feel we had been down to eight% to 9%, which remains to be fairly excessive for the account. The measures that we took concerning the employees, concerning the headcount.

For recruiting, like for everyone else, what are we going to do? There have been labor contracts that had been signed. So we have postpone them, however we’re not recruiting anyone in the meanwhile. Until there are some, clearly, wants for a beginning undertaking. Let’s not overlook that our clients have decreased their exercise in a strongly method, and due to this fact, the business exercise has additionally declined. So we organized our conferences over the telephone or by video, however the variety of business conferences have been decreased in a major method. That is going to result in a discount of initiatives. And due to this fact, right now, the recruiting insurance policies are on maintain. Whether or not we must always have a [softer] plan. At this stage, we’re utilizing furlough wherever we will to protect the abilities as a lot as attainable. And we’ll regulate — we have used furlough measures, and we’ll see.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [6]

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The query is concerning the intercontracts. Properly, so generally, you have got furloughed staff since you get a profit from the federal government. It is not the case all over the place in all international locations. So what could be the financial savings in your margin?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [7]

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I haven’t got the precise figures. I will have the determine, the precise determine on the finish of April.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [8]

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For March?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [9]

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So it takes a while to place the request, get the approval, et cetera. So it’ll happen in April. And the precept is similar in all international locations. We make a request in volumes, in hours, or we multiply the — for instance, 5 days over Three days. It is a share. After which on the finish of the month, on the idea of the fact of the initiatives, we declare that persons are furloughed. It may very well be a partial or a full course of. We have requested for furloughed measures within the U.Okay. and Romania, in Sweden, in Germany. We simply filed for it in Belgium, in France, for the principle international locations, in Spain as properly. Finland has additionally requested for the likelihood to do it. Even Italy, the place the intercontract price is sort of low. So it is making use of to most international locations the place we do have an issue with the exercise.

The one nation the place there aren’t any furloughed staff is within the U.S. As a result of within the U.S., when you do not want individuals, you lay them off. However we’ve determined to not do it as a result of when you recruit individuals, you practice them, we have determined to not dismiss them, however we’ll see in a month’s time, within the U.S., if we’ve to regulate if initiatives which were stopped, like for Volvo, Ford, if they don’t begin once more. However a few of them will begin once more. Nevertheless it’s too early on to take any selections at this stage.

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Laurent Daure, Kepler Cheuvreux, Analysis Division – Head of IT Software program and Companies Analysis [10]

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Now furlough, relying on international locations, you’ll compensate absolutely or not? In France, for instance, the federal government can pay as much as 70% of the gross wage, which total implies that individuals will get 80% of their web wage.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [11]

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There’s a Syntec conference, which is saying that we must always pay as much as 90% or 100% of the wage. The extra price isn’t being paid by the federal government, clearly, in all international locations on the planet. Furlough will give proper to paid holidays, which aren’t being paid by the federal government. So even when there’s furlough, it isn’t going to neutralize the price of the worker, and it isn’t going to do it in a unified method in all international locations. So furlough is an effective factor as a result of it makes it attainable to carry and to not take hasty selections as a result of our know-how is our engineers. Nevertheless it has penalties on the margin. Not solely there may be some residual price, however the misplaced turnover isn’t going to generate any margins. And that is true for the entire trade.

The margin that we’re dropping on our turnover is a margin on initiatives. So they’re much larger than the 30% that we’ve as a result of this gross margin that we’ve contains intercontract or the whole lot that’s obligatory for manufacturing.

Now the M&A coverage. We had a variety of recordsdata that had been signed, however had not been closed. And so we’ve frozen them in lieu of the state of affairs. However we’re taking a look at different recordsdata as a result of firms shall be bought at a lesser worth as we speak. However the problem is that it is sophisticated to evaluate an asset as a result of we do not know what the corporate’s exercise shall be in 2020 and what the margin shall be in 2020. There won’t be so many individuals promoting as a result of it is an atypical 12 months. And the query shall be, if in case of any deal, we must agree on a down cost that’s the lowest attainable related to the foreseeable exercise in 2020. So I do not see any attainable offers earlier than Q3, and earnouts will most likely be larger as a result of they are going to be correlated to the rebounds in 2021, 2022. Nevertheless it may very well be a possibility to make acquisitions in favorable circumstances that we could not have performed in different circumstances. So we’ve not frozen our M&A coverage. We’re nonetheless trying and analyzing targets.

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Operator [12]

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We do have one other query from Gregory Ramirez.

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Gregory Okay. Ramirez, Bryan Garnier & Co Ltd, Analysis Division – Analyst [13]

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Bruno, I would like to return again to price and to not the variable share for bills outdoors the pinnacle rely bills. What’s the flexibility that you’ve got applied because the starting of the disaster? What could be the share of variable price in operational bills? I assume that it’s extremely tough to make any budgetary forecast and that there are numerous attainable eventualities. However what may very well be any lending state of affairs when it comes to operational margin on the idea of the decline on the natural progress in 2020? For instance, if you find yourself at 10% of natural progress, you possibly can have 4% to five% of operational margin, for instance?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [14]

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Properly, I can’t talk in regards to the 12 months. We began to make simulations. Taking a look at assumptions for S2, whereas there are numerous of them, to make use of possibilities, it does not imply a lot. So the truth is, we can’t give any steering concerning the second semester. Taking into consideration that the uncertainty is what’s going to be the extent of exercise within the automotive sector and the aeronautic sectors which might be essential sectors for us. As a result of as I used to be saying, our clients didn’t know what would be the initiatives and what would be the quantity of investments that shall be made for the top of the 12 months. So this can be a massive uncertainty.

And concerning Laurent’s query, so far as the pinnacle rely is worried, that is additionally why we’ve no certainty for the variable price at Alten. If I used to be somewhat bit provocative, I might say, we have no. As soon as anyone is within the intercontract, it turns into a set price offshore ADC. They’re a set price as a result of it is captive. All prices are proportionate to the exercise. Engineers, clearly, as a result of relying on the variety of actions with a continuing and commonplace price of exercise, which is 92%, 93%. These are proportional prices, however they don’t seem to be variable price. As a result of to the exception of some subcontractors that we may determine to cease working with if the exercise stops. And this accounts for five% of the conductive earnings and a few of them are linked to some initiatives.

So we aren’t going to cease working with them. As a result of once we name upon subcontractors, it is to not have variable price, it is as a result of we do not have the competence in-house. So to the exception of that facet of issues, in actuality, there aren’t that many variable prices. The variable prices are the bonuses of managers, all features included. So we must regulate the construction if obligatory, relying on the extent of exercise in 2020 — shall be what we take into account to be the usual degree of exercise for 2020. If we take into account that 2020 is sort of a clean 12 months, relying on the initiatives that we’ll have, we must take a look at to measurement the corporate. Clearly talking, the fee have been sized for EUR 2.5 billion. Clearly talking, we’re not going to make that determine, we may have an natural progress discount. And as I used to be telling Laurent, the lack of the turnover could be very costly as a result of we’re dropping the entire margin.

Now how is it going to translate in operational margin? Will probably be minus 5% through the first semester. Now for the second semester, I do not know. Properly, the truth is, for the primary semester, it can depend upon Might and June. So it is actually an advanced train. We do have completely different eventualities, nevertheless it’s an advanced train. Due to this fact, we aren’t speaking on the margin. Normally, I have a tendency to provide you some completely different ranges. However we do have eventualities that we have constructed exchanging — on the idea of the trade between the operational managers and the shoppers. However the clients has no visibility by any means, even on how they’re going to get better, how the exercise goes to be resumed. The well being plan needs to be outlined. A few of them haven’t outlined them. We all know that the — we’re going to get out of the lockdown in a progressive method. That shall be an on-a-zone case. So it is likely to be extra sophisticated in mild of what has occurred with the social companions even when all people could be very strict concerning the well being measures to be put in place.

So the truth is, that is to let you know that I am actually sorry, however I can’t provide you with a really exact reply. However 5% isn’t absurd. It may very well be 6% or 4.2% or 6.5%. The sensitivity, we’re speaking about scores of tens of millions of euros, and we do not have that for S2. So EUR 100 million of turnover. So far as the gross margin on a undertaking is worried, it is going to be about EUR 35 million.

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Gregory Okay. Ramirez, Bryan Garnier & Co Ltd, Analysis Division – Analyst [15]

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So far as buyer’s conduct is worried, I assume that you’re having discussions about cost — laborious to increase cost deadlines?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [16]

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We do have a few of these discussions, however they don’t seem to be a very powerful one. The truth is, buyer, they do not ship out the orders, and that is how they handle their cost deadline. In our trade, we’ve a really longer cost instances. Properly, that would deteriorate. We’ve not seen it to date. We do get cash on due time. So the invoices for 2019 and 2020 are being paid. Now the discussions that we’re having with them are associated to different matters, costs. Clearly talking, clients are getting again to us telling us that their monetary state of affairs could be very sophisticated and their money state of affairs could be very sophisticated. So that they’re asking the entire trade to make vital efforts on costs. Some are doing it on a one-off foundation, however some wish to assessment all of the referencing and all the costs. So that is going to provide rise to sophisticated discussions.

Some clients are asking us to provide them the time to get better. Some are asking us to scale back our costs by 30%, others are asking us to scale back by 5% to 7% sooner or later. So the truth is, we see the whole lot. I feel that in the event you had been to speak to competitors, they’d say the identical factor. Typically additionally, when persons are working from their houses and the engineers aren’t on website, some clients are saying, we take into account that productiveness can’t be the identical. So if it can’t be the identical we take into account that 10%, 15% of productiveness has been misplaced. So we’re asking for a discount of costs by 10% to 20%. We’re not saying sure. However simply to let you know that it is a sophisticated state of affairs.

Properly, it isn’t shocking in view of the context. Issues will get again to regular, however that is the present context we live in the meanwhile.

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Operator [17]

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(Operator Directions) We’ve got a query from Derric Marcon from Societe Normal. So we’ll take one other query from Stefan Slowinski from Exane BNP.

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Stefan Julien Henri Slowinski, Exane BNP Paribas, Analysis Division – Analysis Analyst [18]

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Bruno, I had 2 questions. The primary one was about China. I feel you mentioned that there was no restoration in China in the meanwhile. And we’ve been listening to because the finish of March that issues are choosing up in China, so I would like to listen to what’s your opinion about China?

And the second query, once we’re beginning to consider the reopening in Germany and presumably in France. I do know it is early on however perhaps for subsequent 12 months, do you suppose that initiatives will change? How may initiatives change in our clients? Now will the kind of initiatives would change and what issues for patrons versus the initiatives we had earlier than the disaster?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [19]

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So far as China is worried, the exercise has picked up in China progressively beginning in March. So all people was in a lockdown. Our engineers have labored from their houses for 1.5 months. They usually’ve been allowed to return to the positioning, both on the clients’ or on our website progressively. In China, usually, our exercise price is about 95%, 96%. 3%, 4% of intercontract. Intercontract has gone up through the lockdown as a result of some clients cease initiatives within the automotive sector, notably. So we went as much as 30%, 35% of intercontract charges and all this has been solved, and now the speed is about 10%. The exercise has began once more, not utterly, however for the automotive sector, we nonetheless have a excessive price.

Now so far as initiatives are involved. As soon as the exercise resumes in France, in Germany and Sweden all over the place, the questions shall be, what’s the quantity of investments that clients will determine on the finish of 2020, starting of 2021 since their earnings within the automotive sector and the aeronautics sector will decline in a major method. So what they’re doing in the meanwhile, they’re making stock of their initiatives. So they’ll determine which initiatives will obtain the precedence. If that they had a undertaking that was performed as much as 80%, they need to end it. In any other case, they’ll lose the funding. However then, they’ll determine both to proceed — hopefully, most of them will proceed, however among the initiatives shall be stopped. And a few initiatives shall be resized as a result of a few of our clients are telling us that we must always begin fascinated about lowering the crew for the remainder of the undertaking, and they’re asking us to scale back the specs.

Some initiatives may very well be revisited. For instance, I am fascinated about engineering, manufacturing actions at Airbus. A few of them had been taking a look at methods to meet line velocity, and Airbus mentioned that they had been going to scale back their manufacturing. So Airbus had a month-to-month price as much as 120, they will go all the way down to 40. So the query is methods to save as a result of they will produce the 40 in the meanwhile.

After which a few of our clients are conducting a research about what could be the curiosity of constant a undertaking or not. And we do depend upon their conclusions. But when there’s a discount of earnings in any sector, a discount of earnings will give rise to a discount of funds, even when they’re R&D budgets as a result of they’re pushed by the highest line.

After all, initiatives about standardization, et cetera, besides if the European Union decides to go backward. Usually, these initiatives ought to proceed as a result of life won’t cease. The continuing revolution within the automotive sector will proceed even when it is going to be postponed by 1 or 2 years. That is why we consider the exercise will actually resume in 2021, 2022. However we consider within the automotive sector, the disaster shall be lengthy lasting and the funding degree shall be decreased.

Now what would be the proportion, we can’t converse on behalf of our clients, however it can occur.

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Operator [20]

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One other query for Derric Marcon with Societe Normal.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [21]

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The primary query is in regards to the use price, you mentioned it went all the way down to 88% in March. You gave us tendencies for Q2 per nation. Might you inform us about the place you stand for the primary 2 weeks of April or starting of Q2, so we may have an thought?

And my second query, I would like to return again to Laurent’s query. If you find yourself speaking about intercontract charges which might be very excessive, I assume it is outdoors the furlough. Might you give us an thought of the variety of individuals that you just consider may very well be furloughed? I assume that you’ve got negotiated with the Ministry of Labor already, the variety of furloughed individuals out of those 3,000 individuals. As a result of if we take a look at the glass half full, to generate a 5% margin implies that it’s best to get some heads that do compensate for the lack of turnover as a result of with 30% of intercontract means an enormous drop of the margin.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [22]

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Sure, that is fairly certain. Now for Q2, we took some assumptions for intercontract charges. That features furlough as a result of it isn’t cumulative. People who find themselves furloughed, they’re accounted for as being furloughed, however we take into account that they’re outdoors initiatives. Nevertheless it’s a great factor to ask the query as a result of it isn’t cumulative.

So in March, we had an advanced month. For the final 2 weeks, the intercontract price went up 12%, 13%. The intercontract degree in April is at about 25% on the group degree. And it’ll go down in Might and June, most likely at somewhat bit lower than 20%. However that is a part of our simulations as a result of concretely talking, we do not know what would be the tempo for resuming initiatives and what’s going to occur in June.

So when we’ve people who find themselves not working — now furlough is to compensate for the lack of exercise in view of the financial context. It would not work precisely the identical method in all international locations although the precept is similar. In some international locations, the place — when persons are not working and there may be furlough, there’s a attainable furlough like in Germany. Now if you wish to apply for furlough, in Germany, it is a lot less complicated than in France, which isn’t shocking. The truth is, we will take a look at what is occurring in Europe for furlough and French paperwork is essentially the most environment friendly one, and that is not likely shocking, is it?

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [23]

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No. They made some efforts to simplify issues.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [24]

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Properly, it is true for small-sized firms. As a result of I do know a variety of individuals and former staff from ALTEN have began their very own firms. So small-sized firms that are in a tough state of affairs, they get an settlement for furlough in a short time. Massive firms — for large firms, it is extra sophisticated.

Now to return again to the way it works. In some international locations, when you meet the circumstances for having the precise to furlough you could show that there’s a lot of exercise with the interruptions of initiatives, et cetera. It is not open bucket, that if you’re entitled to furlough that you’ll get the profit both straight, like in Belgium, or it’s the firm that’s going to advance the cash after which it might be reimbursed by the federal government. So in some international locations, it is 70% of the fee or 60% of the fee, it actually depends upon international locations. In a number of international locations, when persons are furloughed, we proceed to pay software program prices. In some international locations, it isn’t the case. In some instances, you need to give some extra wage. You’ve gotten all conditions, all attainable state of affairs. However in all international locations the place we apply for furlough, in the event you beat the factors, you may get a sure or a no reply. And if it is a sure, you’re entitled to it. So we filed for furlough in all international locations the place we’ve a discount of exercise.

Intercontracts because of the lack of exercise are being compensated by furlough. In France, the federal government is vigilant. They wish to keep away from facilities. And due to this fact, we’ve filed a request for furlough as a result of in volumes, it’s in France that we’ve essentially the most — the best variety of staff that may very well be furloughed staff. Once we discuss 4,000 engineers, in the event you take a look at Alten and its first subsidiaries, a few of them are utterly unemployed and others are furloughed. We ask for the variety of hours on the idea of the volumes. And actually, we’ll declare on the finish of the month on the idea of actuality. We’re being given the inexperienced mild for the quantity of hours, however then we’ve to justify that. And in France, we take into account [and this is the normal] that the federal government mustn’t pay for structural intercontract. So we’re not going to use for furlough for people who find themselves in intercontract or standardized intercontract. We do it for people who find themselves in intercontract due to the disaster. So clearly talking, if the intercontract price is 25%, and often, we’re at 6%, we’re going to apply for the distinction. And we ought to be ready to — we ought to be able to justifying this. After which we’re having discussions with the administration, both we get an specific settlement from the administration or we’ve implicit settlement from the administration as a result of they did not have the time to cope with it, and they’ll validate after 24 hours, then we will come and test.

We do have questions and solutions. We’ve got to reply a few of their questions with the intention to show that we’re in a state of affairs whereby we have to apply for furlough.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [25]

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Now what I used to be attempting to grasp, with all these discussions, have you ever carried out — have you ever obtained all of the approvals? Have you ever budgeted your intercontract danger because of the disaster through the first semester? And in the event you make so, what’s the — so what’s the state of affairs in France in the meanwhile?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [26]

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We’ve got filed in all European international locations, and I do not consider there was any downside. In France, we’ve filed for furlough in all subsidiaries. Every little thing has gone by means of an specific or an implicit settlement for Alten as a — I can’t provide the figures, however we’re speaking about half of the pinnacle rely for France.

And right here, we’re exchanging questions and solutions. The administration is asking us a variety of questions. Have you ever put in place some measures to protect the exercise? Have you ever organized the truth that individuals may work from their houses? They’re asking official questions, and we’ve to reply them. Nevertheless it’s not as easy as in different environments.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [27]

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Properly, 50% are being coated. So 50% for France are being coated. However what you’ve got performed already and the remaining 50% are a part of the Q&A session with the administration?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [28]

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Sure, that is proper.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [29]

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We’re solely speaking in regards to the productive employees? Have you ever utilized for nonproductive employees?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [30]

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Sure, we’ve put a request for nonproductive employees as properly, not as a lot, relying on features. We’ve got reviewed features one after the other. For instance, the individuals in command of recruiting, they don’t seem to be overwhelmed in the meanwhile. So we have requested for furlough for them, not whole furlough however we’ve thought of that almost all of them had been furloughed.

For the finance individuals, it isn’t the identical factor. Some business managers, it isn’t the case. They’re working nights and days. So it actually depends upon your perform. Folks organizing occasions, they’re furloughed. Even when some occasions have to be organized for September, however business seminars in Might, company conferences, for apparent causes, they’ve all been canceled. So we’ve checked out all features, one thing that the France administration is asking. They requested us to enter element for the organizational chart. For firms of our measurement, it may not be the case, for smaller firms, however they ask — they take a look at all positions within the organizational chart.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [31]

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One final query, if I could. Should you take a look at what’s going to occur after the disaster, the truth that we’ve organized telework out of your houses and from the client, is that going to make us take into consideration how we may ship merchandise to clients even after the disaster? Like engineers which might be nonetheless working for Amadeus, they don’t seem to be going to work for Amadeus for a very long time. Do you suppose you possibly can reorganize the truth that they may work from their houses on different initiatives in France since distant work is changing into commonplace? Or is it going to be nonetheless very sophisticated to make use of that workforce in a distant method?

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [32]

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So what we’re taking a look at, in the meanwhile, concretely talking, individuals who had been working for Amadeus, Amadeus goes to cease their initiatives. We will — we’re taking a look at how we may use the competencies in different sectors of actions in reference to IT. They won’t essentially be based mostly in Sophia Antipolis. The reply is sure, we will get organized having individuals work remotely. Once they’re engaged on our facet, they’re already working remotely with clients as a result of some steering committees are being held on a weekly or month-to-month foundation. So we may envisage having distant work proceed. And actually, it is attention-grabbing to see that it really works fairly properly. Now we do not know if it’ll proceed to work properly. As a result of with the intention to work remotely, it is advisable to have the precise circumstances. Not all people has all of the circumstances met as a result of generally you hear that the kids are within the again. Nevertheless it saves transportation time. If individuals know methods to get organized and if they are often autonomous working from their houses, we may envisage on the long term to have much less premises, for instance. As a result of as we speak, we’ve a number of sq. meters to place with clients’ necessities as a result of they needed their work packages to be situated subsequent to the perimeters, so they may have smoother human exchanges. We may have much less premises, we may have individuals rotate on websites, work organizations whereby individuals would go to a website for Three days after which they’d stay at house for two days. And we’d have to prepare these kind of plans when we’ve individuals engaged on safety.

For instance, we’ve a variety of open area places of work. And there, we do not have the two meter distance — safety distance. So I do not consider individuals will have the ability to work from their houses with out ever going to the workplace as a result of there’s skilled and social hyperlink that it is advisable to maintain. At Alten after a number of weeks working from their house, persons are coming again to the workplace, and so they’re very joyful to return to (inaudible). However that is going to drive us to have a unique group. We have seen video conferences with 60 contributors. That is one thing that we had by no means envisaged previously. Even 6 months in the past, we would not have considered it and it really works properly.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [33]

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Properly, I am not listening to individuals slapping their kids. I am listening to individuals enjoying the piano. This morning, I had a convention — video convention and I heard anyone slapping their kids.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [34]

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Sure, the principle impediment is the truth that faculties are closed.

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Derric Marcon, Societe Generale Cross Asset Analysis – Fairness Analyst [35]

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Sure, it is sophisticated.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [36]

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As a result of it is advisable to have the precise circumstances in place. We — our engineers are fairly younger, they’re roughly 30 years outdated. So they only began their work lives. They do not all have an enormous residence the place they will isolate themselves. We’ve got to consider the sensible circumstances.

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Operator [37]

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Thanks. So the ground is yours for the conclusion.

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Bruno Benoliel, Alten S.A. – Deputy CEO & COO [38]

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Thanks very a lot. Thanks to all of you for attending that phone assembly, which is sort of distinctive. I feel in 2008, we had an advanced 12 months. However the matters are fairly completely different from those that we have been speaking about. Hopefully, we’ve given you an image of what the market appeared like. Through the publication in July, I will be extra exact on the S1 margin as a result of to make any forecast at this stage could be very tough. It would depend upon the turnover in Might and June and the turnover sensitivity could be very excessive. In July, I will provide you with a exact image of what we may count on when it comes to margin for the primary semester. We’ll see whether or not the extent of exercise has declined by roughly 9%. We’d have a pleasant shock. However to be trustworthy with you, we consider that we have been fairly goal in our forecast. And hopefully, we’ll have a transparent imaginative and prescient of what would be the exercise within the second semester. And hopefully, issues will clear up. So I want you a pleasant weekend and see you quickly. Thanks. Bye-bye.

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Operator [39]

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The convention is over. Thanks in your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]



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